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Trading places: South Africa trades with the Gulf

Closer ties between South Africa and the Gulf are leading to a boom in bilateral trade

By Ashford Fernandez

Sun 02 Sep 2012 11:27 AM

Last week saw just the latest chapter in the improving investment ties between South Africa and the Gulf.

The African nation’s second-biggest private healthcare operator bought the remaining stake in Emirates Healthcare Limited that it did not already own. The deal, worth $224m, saw Mediclinic International take a 49.63 percent stake in Dubai’s largest private healthcare provider.

There is much that the two regions have in common. In the recent World Economic Forum’s Global Competitiveness Index, South Africa fared remarkably well. After slipping nine places last year — from 45 to 54 — it recovered to 50 in 2011-2012, thanks mainly to impressive gains in accountability of private institutions, strength of investor protection and technological readiness. South Africa’s superior ratings in these areas of sustainability were seen as indicative of a highly positive long-term outlook for the South African economy, and of trust in South Africa at a time when it is returning only slowly in many other parts of the world.

In the same index, the Gulf nations also scored highly. Qatar retained its status as the Middle East’s most competitive economy, with the country ranked 14th on the list, climbing three places. Qatar was joined in the top 20 by Saudi Arabia, which rose four places to 17th position. The UAE fell two places to 27th despite being seen as a safe haven amid the uprisings associated with the Arab Spring during the first half of 2011. Oman rose two places to 32nd while Kuwait rose one place to be ranked 34th.

Bahrain, the Gulf country worst hit by uprisings, retained its position at 37th.

Both are emerging markets, and both are working hard to push their way out of the downturn that has so affected more traditional economies. This blossoming relationship was symbolised by the high-level visit of South African president Jacob Zuma to the UAE and Oman late last year.

“During this visit we expect that greater investment opportunities for both countries can be identified. We are pleased that institutions such as the Abu Dhabi Investment Authority are committed to investing in South Africa,” Zuma said at the time.

During the president’s visit, five bilateral agreements were signed, and a further five are being negotiated.

From the numbers perspective, the growth in trade between the UAE and South Africa has also been promising. South Africa is the 19th largest investor in the Gulf state. In 2011, bilateral trade was valued at close to $2bn, surpassing the peak of 2008.

That figure was a significant hike on the $1bn figure from 2011. Right now, the traffic is heavily weighted on South Africa’s side, both due to oil exports and Dubai’s growing position as a re-export location for goods being forwarded to African markets.

But there is also significant interest from the corporate side as well. In December last year, dnata, the Dubai-based air services provider, bought a 50 percent stake in Wings Inflight Services, an airline catering outfit with operations in Johannesburg and Cape Town. At around the same time, Aramex acquired local logistics firm Berco Express for $55.5m, as part of its push into African markets.

And South African firms are also investing heavily in the UAE. But it’s not just money that is coming into the country. The Paramount Group, one of South Africa’s biggest defence contractors, is aiming to help develop the UAE’s knowledge economy as well. The company has signed a deal with the International Golden Group, an Abu Dhabi-based firm, that should see it set up a facility that will produce armoured cars in the UAE capital. In addition, Paramount also sees synergies in other areas as well.

“Partly because of the geographic location — and partly because the Gulf also happens to be one of the biggest aerospace markets in the world, we think we have a lot of technologies that would be very useful here. As the governments of South Africa and the UAE get closer in terms of strategic collaboration, there’s definitely potential for cooperation there.”

As a result, the slew of South African companies making their way to the UAE and the rest of the Gulf to do business is only likely to increase.

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South Africa’s construction industry is beginning to revive activity, with demand in most segments still muted following a post-World Cup 2010 slowdown in project spending, but edging up slowly — although a proposal by a senior government minister for the establishment of a state-owned contractor may dampen private sector confidence.

After several quarters of underwhelming performance, there have been signs that the construction sector is easing slowly out of the doldrums, although the outlook is far from positive. In mid-April, the First National Bank (FNB) and the Bureau for Economic Research (BER) released the findings of their latest survey of the construction industry. In its civil construction confidence index, FNB/BER found industry sentiment had risen to 34 points for the first quarter of the year, well up on the 26 points for the preceding quarter, and the 21 posted for the third quarter of 2011. However, with a score of 100 indicating a positive outlook, the latest figure still indicates an extremely cautious forecast.

Cees Bruggemans, FNB’s chief economist, said the present level of the confidence index showed that some two-thirds of respondents remain dissatisfied with prevailing business conditions. “Activity is up, but the slow rate at which new work seems to be appearing could hamper the pace of the recovery in this sector,” he said.

As a result of the muted activity, there was a 6.7 percent decline in employment levels in the construction industry for the quarter.

Much of the new activity in the pipeline is part of big-ticket state infrastructure projects, though at least some of these are already behind schedule. These delays, along with a general slowdown of the economy, have prompted concerns over timely project delivery in the public sector, which has often been an issue in previous fiscal years.

In spite of that, however, government projects have been key in helping stem further complications in the construction sector, by providing a steady flow of capital for a variety of new infrastructure and building projects. For example, while there has been a downturn in construction of private housing, this has been offset to some degree by state spending on public housing units.